Standing Committee A

[Sir John Butterfill in the Chair]

Finance Bill

(except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39)

Clause 139 - Overview of Part 4

Question proposed, That the clause stand part of the Bill.

Ruth Kelly: I am delighted to see you in the Chair, Sir John. Not only do I look forward to your expert guidance, but I know how much of an interest you take in this set of clauses. I am sure that, in your wisdom, you will keep us on a safe course.
 I will start by introducing the pension simplification provisions. At present, there are eight different sets of rules for pension schemes. The system is complex, expensive to administer and confusing for members, employers and providers. We are sweeping away the existing rules and regulations and replacing them with a single regime for all tax-privileged pension saving. That represents a hugely positive step for those saving or looking to save towards their retirement. 
 Simplification will introduce greater individual choice and flexibility. For the first time, everyone will have the same opportunity to make tax-relieved pension savings over a lifetime. Our proposals will create a transparent, consistent and flexible system that is readily understood. That will make it easier for people to concentrate on things that matter, such as when and how much to save for their retirement, rather than on trying to understand anomalies between the different tax regimes. 
 Simplification will reduce the administrative burdens and regulatory cost for pension schemes, their members, operators and sponsors, and will create opportunities for people to save more towards a pension and a retirement lump sum. The new rules will allow everyone to pay what they can afford when they can afford it. 
 The pension simplification provisions represent the outcome of two formal consultations and extensive informal consultation. At every stage, we have had regard to the views of those who will be affected, whether individuals, employers or pension providers. 
 The new regime will consist of two key controls: a lifetime allowance and an annual allowance for the amount of tax-relieved savings that can be made. It is important to recognise that the allowances will not prevent people from saving more in registered schemes 
 if they wish to. The lifetime allowance will initially be set at £1.5 million and will rise to £1.8 million by 2010. The annual allowance will initially be set at £215,000 and will increase to £255,000 by 2010. Those allowances represent very generous levels of tax-relieved savings. They are far in excess of what 99 per cent. of the population currently save or are ever likely to. However, they limit the amount of tax relief that very high earners can obtain, which is fair. 
 When someone saves more than the lifetime or annual allowance, they will have to pay a charge. There will be a lifetime allowance charge of 25 per cent. on pension funds in excess of the lifetime allowance. The charge will be 55 per cent. if the benefits are taken as a lump sum. There will be an annual allowance charge of 40 per cent. on funds in excess of the annual allowance. Neither of those charges is intended to be punitive. They are simply intended to remove the benefits of the tax advantage given to savings in registered pension schemes. 
 The two allowances replace a multitude of controls and restrictions in the existing regime. Currently, there are controls on contributions by members, the rate of funding, the level of benefits that can be paid and the amounts of transfers. Different regimes apply depending on the type of pension and when the member joins the scheme. All those restrictions will go, as will the retained benefits rules and all the other rules that arise from the discretionary approval of schemes by the Board of Inland Revenue. 
 We are replacing regimes that restrict benefits and contributions quite tightly with a regime that restricts tax relief and nothing else. That is a fundamental change and gives schemes much greater freedom when it comes to how they design pensions. 
 There is a range of other positive measures, including protection of pre-A-day rights from the lifetime allowance charge, the opportunity for schemes to offer all their members a tax-free lump sum of up to 25 per cent.—in most cases, that is far more generous than the current rules—and new flexible retirement rules, which will mean that, for the first time, members of occupational pension schemes will be able to draw retirement benefits while continuing to work for the same employer. 
 We are also simplifying the administration associated with securing tax privileges for pension funds. There will be new, simpler processes for scheme registration and reporting. The new rules will reduce the regulatory burden on pension administrators and encourage innovation in pension design. The provision for flexible retirement will help to promote active ageing, which will allow the economy to benefit from the skills and experience of older workers, while encouraging them to save more to boost their retirement. 
 The provisions represent a radical and fundamental simplification of the tax regime on pensions. The responses that we have received to the proposals have been generally positive. I trust the Committee will welcome them with similar enthusiasm.

George Osborne: May I say what a pleasure it is to take part in the proceedings? Although I have been a member of the Committee, I have not been a particularly visible member in recent weeks. I have a very good excuse: I have been serving on the Committee considering the Pensions Bill. It is a particular pleasure to be serving under your chairmanship, Sir John, because I know that you are a great expert on pensions. I am delighted that you are in the Chair rather than behind me, because you would intervene on me to point out where I had got things wrong and correct my mistakes.
 It is a delight to shadow the Financial Secretary. Under the Leader of the Opposition's new arrangements for shadowing, I seem to have ended up shadowing about five Ministers, but the Financial Secretary is undoubtedly my favourite. We had a very good time on the Child Trust Funds Bill with the hon. Member for Yeovil (Mr. Laws) earlier this year. I thought that she conducted herself with great moderation, was very sensible and listened to my arguments. She even accepted one or two of my amendments, which is all one can hope for in opposition. I am sure that I speak for everyone when I say that there is nowhere we would rather be today than in this Committee. 
 As the Financial Secretary said, we are dealing with the largest single item in the Bill, the pension simplification process. I shall explain why I call it not a simplification process, but a new tax regime for pensions. We generally support what the Government are doing, and we do not object in principle to the overall package. By and large, we think that they have put together something that the industry welcomes. They have consulted. In a number of key areas, they have changed their mind and listened to the industry. Therefore, we shall be giving the provisions, in their broadest sense, our support. 
 I do not refer to the process as one of simplification for a couple of reasons. First, it is difficult to describe 151 pages of primary legislation, 100 pages of secondary legislation and 350 pages of guidance notes as simplification. Some people in the industry have been quite critical of that. The National Association of Pension Funds has said: 
 ''The quality of drafting of the Bill is also disappointing. It is not transparent, lacks clarity and is not always consistent, which makes for difficult reading. Considering the scope of the new provisions . . . and the amount of effort schemes would need to go through to implement the new regime, one would have expected that, as a minimum, the rules would be clear, consistent and easy to read.'' 
Secondly, it is not a question of sweeping away eight different pensions tax regimes and replacing them with just one. The new process will create about six regimes. That is certainly the view of PricewaterhouseCoopers, which says: 
 ''Today's Finance Bill clearly illustrates the complexity of delivering pensions tax simplification. The Bill reveals that the Government's original intention to reduce eight tax regimes to one, has actually resulted in the creation of six separate regimes.'' 
I know that Committee members will be interested to learn that PricewaterhouseCoopers identifies those regimes as the registered schemes regime, the employer finance retirement benefit schemes, overseas 
 recognised schemes, overseas unrecognised schemes, section 615 schemes and corresponding accepted schemes. That is the view of one of the largest accountants in the world. 
 Although the process will make pension planning easier for many, it will make it massively more complex for those with the largest pensions, which we shall touch on later—quite a lot of the Bill concerns those with very large pension pots. It is not a simplification, but it is new and it is welcome. We welcome the fact that the Government have made several significant changes since the consultation. They have reduced the recovery charge from 33 1/3 per cent. to 25 per cent. There has been a climbdown on the issue of the lifetime allowance. The Chancellor of the Exchequer dug his heels in and said that he would not shift from the figure of £1.4 million for the lifetime allowance. When the National Audit Office showed that he was 100 per cent. wrong in his estimates of how many people would be affected, he climbed down. We welcome the change to a simple valuation of defined benefits—the 20:1 formula—and the more generous transitional arrangements that we will debate later. 
 We welcome any measure that supports saving. As we begin the sittings on these provisions, it is important to remember that the measures are being introduced—rather like with the Pensions Bill—against a background of a savings crisis. The savings ratio has halved and confidence in pensions has collapsed for a range of reasons. It is interesting to hear what the chairman of Aviva, which operates Norwich Union, the largest life insurer in the country, said last month: 
 ''We will have a generation of elderly people coming soon who will have a hard time to live above the poverty line. No one should be proud or pleased with that scenario.'' 
He also said that Aviva is seeing faster rates of savings growth in many continental European markets than in the UK because of people's reluctance to save in this country. 
 Last month, JP Morgan Fleming published a survey that found that 61 per cent. of the top 350 pension funds have closed or restricted availability to defined benefit schemes. We will talk about the balance between defined benefit and defined contribution schemes. The survey found that 60 per cent. of the top 350 funds have a defined contribution scheme. There has been a shift away from occupational pension schemes. 
 The Government made great play of the Pensions Bill providing security for people with pensions and dealing with the problem of people who lose their pensions. It is worth noting in passing that the Association of Consulting Actuaries survey on that Bill stated: 
 ''Fewer than 1 in 10 firms felt that the measures will improve pensions coverage . . . 9 out of 10 firms say the Bill's measures will either add to costs . . . or make no difference'' 
to their position. That is the background against which we are examining this change to pensions law. 
 I will flag up areas of concern, where we will seek to push the Government. The largest area of concern and the greatest disappointment that we and the industry have is that the Government have not used the 
 opportunity to scrap once and for all the requirement to buy an annuity at the age of 75—that issue is dear to your heart, Sir John, as you introduced a private Member's Bill on it some years ago. The Government have opened the door a bit with the alternatively secured pension—we shall see how much they have opened it when we debate the measure. 
 The Treasury has presented the measure as a response to the genuine concerns of religious groups such as the Christian Brethren about the pooling of mortality risk. However, many people to whom I have spoken in the industry think that the measure will drive a coach and horses through the requirement to buy an annuity. They think that a huge number of people will take up the opportunity that the measure presents, as death benefits can be exploited to allow people to pass their pension pot on to future generations. 
 We welcomed the Government's retreat from the figure of £1.4 million for the lifetime allowance. They could hardly have stuck to it once the National Audit Office showed that they were 100 per cent. wrong in their estimates of the number of people affected. When we commented on the consultation, we questioned the need for an allowance at all, provided that schemes were required to offer the same sort of pension with the same sort of benefits to people at every level of the company—from the boardroom to the shop floor. That might have been a way of encouraging the creation of whole company schemes. However, we will not die in a ditch fighting for that proposal in Committee. 
 I suppose that I will make the point again when we discuss the lifetime allowance but, if we are going to have a lifetime allowance, surely the Bill should include a mechanism for reviewing that allowance, regularly increasing it and linking it to earnings or, perhaps, to prices. At the moment, there is no mechanism for increasing it. Although the explanatory notes tell us what it will be for the first five years post A-day, that information is not in the Bill. We will seek to have it included. 
 We have some smaller concerns in other areas: for example, the impact of the legislation on occupational schemes with fewer than 50 members and the impact on the future of with-profit annuities. I look forward to explaining those during the next couple of weeks. It is our intention to turn a not bad set of reforms into an excellent set. We look forward to the co-operation of the Financial Secretary in achieving that.

David Laws: We join the hon. Gentleman in welcoming the broad thrust of this part of the Finance Bill, and in particular its attempts to simplify the existing pension tax regimes. The measures are an attempt to simplify and to codify existing Inland Revenue rules.
 It is notable that the measures in their existing form have been welcomed by most of the professional bodies that have commented. They see the proposals as a simplification of existing rules and feel that the 
 Government have gone out of their way to listen to some of the concerns that were expressed at an earlier stage. 
 We still have a fairly generous regime on tax relief and pensions in this country, particularly by international standards. As the Financial Secretary suggested, the measures make the existing regime slightly more generous, starting with a cost of £25 million in 2006-07, rising to £165 million by 2008-09. 
 The first issue that I want to raise at this stage is the £1.5 million lifetime limit. We think that that reflects a sensible balance between the constraints on the Chancellor of the Exchequer in relation to public expenditure and tax reliefs on the one hand, and the need to ensure incentives for people right up the income scale on the other. 
 Now that the Government have made the adjustments that the Chancellor announced in the Budget, we do not have a problem about the overall magnitude of the £1.5 million limit. We do, perhaps, have a more fundamental concern about the fact that the £1.5 million relates to the total pot of money in pension investments rather than to the amount going in. We are concerned, and perhaps the Government should be as well, about whether, at a time when there is significant asset price inflation, a large number of people moving up into what would be seen as quite penal tax bands in relation to their pensions will cause a problem. There remains an issue about whether we are giving tax relief in relation to pensions in the right way and whether, if there is another surge in the stock market, the Government's chosen mechanism will not create a few problems. 
 We are frequently teased by Treasury Ministers and by the Prime Minister for having a policy of a 50 per cent. top rate of tax on earnings of more than £100,000 a year. However, as many people have noticed—including noble Lords in another place—the Government are implementing a tax charge of around 55 per cent. in relation to pension fund assets above the £1.5 million cut-off. That is something that we will remind them of in the future. 
 Our second concern is wider. It relates to the point that the hon. Member for Tatton (Mr. Osborne) made when he said that the Bill is largely about people with the largest pension pots. Much of the discussion that we have had and that we will no doubt continue to have about the measures in the Bill—the £1.5 million cap, the ceiling of £215,000 on annual contributions and so on—will seem completely irrelevant and bizarre to most people in most parts of the country, for whom the idea of having a pension pot of £1.5 million or being able to contribute £215,000 in any one year would be cloud cuckoo land. 
 I have a great deal of affection for the hon. Member for Arundel and South Downs (Mr. Flight), but in some of his contributions on the Bill so far he has spoken rather in Press Gallery terms, as if the average person in this country was on an income of £100,000 or £200,000 per year. He spoke passionately about country estates and public access to them. In the real 
 world, which most of our constituents inhabit, average income and earnings are far lower than we in this place and certainly most of the press assume. 
 I read with some amusement recently an article that appeared in The Daily Telegraph, which I must confess is not my normal read. I could not get my usual paper that day, so I read The Daily Telegraph. As it was a quiet day, I turned to the ''City Comment'' section. Imagine my surprise when I read an article entitled, ''The Chancellor's munificence seems too good to be true''. It began: 
 ''We read it in the Budget Red Book but we didn't quite believe it. Now it's in the Finance Bill, it really does seem that our dear Chancellor has opened up a quite splendid tax loophole for the affluent middle-aged, a group of people for whom he's had little good news for much of the past seven years.'' 
The article went on to describe how this Chancellor has not only maintained the tax-free lump sum, which a previous Chancellor referred to as a ''much-loved anomaly'', but has extended its influence so that more people can take advantage of it. The article discusses the risk that, in their last year before retirement, people will transfer to their pension funds huge sums that they then will be able to draw down as a tax-exempt sum. Presumably, such people are not average members of the population but those who are on particularly high earnings or who have a large number of assets. Hon. Members may wish to read the article, which also gives details about the prospects for investing pension fund money in second homes and retirement homes. 
 My concern, which may not be the same as that of the hon. Member for Tatton—we shall explore that in the course of the debate—is that in our debates about pensions and pension tax relief we talk much too much about a tiny proportion of the population. Of course, it is important that the system should be fair for everyone, regardless of how much money they earn. Everyone is entitled to expect the Government to consider their financial interests in a fair and reasonable way, but we spend a great deal of time thinking about the financial interests of and tax relief on pensions for 1 per cent. or 0.5 per cent. of the population. The problem for the vast majority of people is that they do not have incomes that allow them to save easily, and they probably do not understand the existing pension system or tax reliefs because of their complexity, which has got far worse.

George Osborne: I share the hon. Gentleman's concern about those who do not have anything like the sums talked about in some parts of the Bill. Just so we know where we stand, could he explain his party's policy on the basic state pension? Is it still the position of Liberal Democrats to link it to earnings, or have they changed their mind on that?

David Laws: I have exciting news for the hon. Gentleman. I shall be going to a meeting later this morning to discuss the final touches to a paper, to be unveiled at our conference, on that very issue. I shall send him a copy—perhaps even an early copy, before the conference—which he will be able to read in great detail. He will be interested to know that the proposals
 will all be carefully costed and worked through, in contrast with the shadow Chancellor's proposals, the pages of which seem to have been glued together for a couple of years. You may be getting slightly impatient with the detour on which the hon. Member for Tatton has taken us, Sir John. I promise not to go any further down it.
 My point is simply that we must give more attention to tax reliefs for the majority of people who have pensions and for those who should be incentivised to contribute to pensions. Perhaps it is unreasonable of us to expect the Government to do that in this exercise, which is largely about simplification and codification of the existing rules. However, I hope that they will return to pensions tax reliefs in future Finance Bills and make proposals that have more relevance to the majority of our constituents, rather than a very small group.

Howard Flight: May I add my welcome to you this morning, Sir John?
 I want to make a few points in addition to the main points raised by my hon. Friend the Member for Tatton. First, I am pleased that the retained benefits rule has gone. I had endless stick from my constituents about the rule, which affected people who had been in the armed services or whose career finished at, say, the age of 50, and then took another job and received another pension. They were constrained in what they could enjoy from that pension, and in a world in which more and more people will have two, if not more, careers, that could cause unfairness. It is not explicit in the Bill that the rule will go, so I was pleased to hear the Financial Secretary confirm that it will. 
 My second point concerns the £1.5 million cap, which is rising to £1.8 million. The sums for those with final salary schemes and those with money purchase schemes are very different, and the Committee will need to look at that in detail because there is scope for unfairness in treatment between the two, depending on annuity rates. 
 In previous debates on the Bill, I have tried to achieve legislation that is not retrospective and is fair rather than unfair. That principle is right, whatever anyone's means, but when we come to the transitional arrangements, I am mindful that when the Conservative Government introduced the principle of the pension cap in 1989, it grandfathered the situation for those with pension arrangements prior to that and the new cap was not retrospective. As we come to that part of the Bill dealing with transitional arrangements, it is an important principle that that should remain so until people retire if they stay in their pension schemes. It would be an extremely retrospective step if the legislation ended up damaging people's rights. 
 My hon. Friend the Member for Tatton has already commented on annuities and I look forward to making a contribution when we come to that. One of my primary objectives since arriving in this place has been to get rid of an out-of-date, patronising requirement that has become an increasing cause of concern to people as they approach the age at which that will have an impact on them. We have a lot to deal with, but, 
 echoing my hon. Friend, there are some improvements in the new structure and the industry broadly welcomes that.

Ruth Kelly: I welcome the hon. Member for Tatton, and I am sorry that I forgot to welcome him on his first outing on the Bill. I look forward to working with him during this debate. He was right to say that we had a very constructive debate on the Child Trust Funds Bill.
 I am pleased to hear the welcome that Opposition Members have given to our proposals and the recognition that we have listened to representations on the Bill. I am also pleased at the recognition of the hon. Member for Yeovil that this is a much more generous system for the vast majority of pensioners than the one that it replaces, particularly in respect of the tax-free lump sum. Many more people will be able to benefit from a 25 per cent. tax-free lump sum. I remember many debates in the House and many Treasury questions suggesting that we had a secret plan to remove the tax-free lump sum. I feel vindicated, to say the least, that we have provided a much more generous element for the vast majority of pensioners.

David Laws: Can the Financial Secretary tell us broadly how much of the additional expenditure on these measures will be a consequence of the greater generosity of the tax-free lump sum and how much will relate to some of the other small changes in the Bill?

Ruth Kelly: We have not provided a breakdown of the costs. As the hon. Gentleman is well aware, the published figures speak for themselves. A fair proportion of the costs is related to the increase in the tax-free lump sum, but there are elements related to the opportunity to take flexible retirement for the first time as well. The measure will provide a huge relaxation of the rules for the vast majority of pensioners.
 Geoff Pearson, head of Sainsbury's pension scheme, said that the Treasury's proposals are much more radical than anyone on his side of the industry could ever have hoped for. He said that sometimes the industry must congratulate politicians and civil servants and that now is that time. Given the response by the industry to the proposals, I was slightly disappointed to hear the suggestion that the measures are not a true simplification of the schemes. In no sense are we replacing the current eight or nine regimes with six new regimes; the simplified regime introduces one set of rules for tax-privileged pension savings. 
 Pension schemes that wish to benefit from the new regime must be registered. Non-registered schemes will be allowed to continue, but they will not benefit from the tax relief and tax-free investment afforded to registered pension schemes, hence the need for various definitions in the legislation. It is a radical simplification that will benefit millions of pensioners. I am delighted that the Opposition parties have welcomed the clause and I look forward to a constructive debate. 
 Question put and agreed to. 
 Clause 139 ordered to stand part of the Bill.

John Butterfill: Perhaps I may be permitted to say a couple of words from the Chair. In my capacity as chairman of two pension schemes, I, too, welcome the simplification.Clause 140 Meaning of ''pension scheme''

Clause 140 - Meaning of ''pension scheme''

George Osborne: I beg to move amendment No. 198, in
clause 140, page 130, line 10, at end insert
', except a personal pension scheme or an arrangement comprising a number of personal pension schemes,'.
 [R] Relevant registered interest declared.

John Butterfill: With this it will be convenient to discuss amendment No. 199, in
clause 266, page 218, line 25, at end insert— 
 'personal pension scheme Section 1 of the Pension Schemes 
 Act 1993.'.

George Osborne: These are not huge amendments. The clause is the first of three that deal with definitions. In this case, it is the definition of a pension scheme and in the subsequent two clauses the definition of a member and of a pension arrangement. Clause 140(5) defines an occupational pension scheme.
 One criticism of this legislation and of the Pensions Bill—if one takes them as a package—is that the Government have not settled on an agreed set of terms. If one compares the Department for Work and Pensions legislation with the Treasury legislation, one sees conflicting use of terms such as personal, occupational, defined benefit, defined contribution, money purchase and final salary. To people in the street, the abundance of terms, some of which mean very similar things, is very confusing. The complication is one thing that deters people from dipping their toe into the pension pool. 
 Subsection (5) could mean that a definition of an occupational pension scheme would cover a group personal pension scheme. My amendments are designed to make the distinction between an occupational pension and a personal pension clear and unambiguous. I take the definition of a personal pension scheme used in the Pensions Scheme Act 1993. An expert pensions lawyer who examined the measure and felt that there was scope for confusion suggested the amendment to me. I did not mention in my introduction that Opposition spokespersons are hugely dependent on the help of experts, and not just representative organisations, but specific individuals who give up their time not for party political reasons but because they want to make legislation better. The amendments are an attempt to make a clear and unambiguous distinction between occupational and personal pension schemes.

Ruth Kelly: I understand that the hon. Gentleman is in a unique position in the House in being able to draw on the synergies, or otherwise, between the Pensions Bill and the tax simplification proposals, as he is taking both through Committee. However, I suggest to him
 that the amendments introduce an unnecessary complication to the tax simplification definitions in the clause.
 The purpose of bringing in a single, unified tax regime for pension schemes is, as far as possible, to get away from distinctions between occupational and personal pension schemes, yet the amendments would perpetuate that distinction. For the Department for Work and Pensions, the distinction between occupational and personal pension schemes is absolutely fundamental. It underlines their regulatory regime. For the Inland Revenue, however, the distinction between the two is largely academic, but the Revenue does need a definition of occupational pension schemes, principally so that those schemes can be checked against certain types of payment between schemes and sponsoring employers. 
 The term ''sponsoring employer'' can have meaning only in the context of a scheme established by or for the employees of that employer, hence the need for a definition. There is little point in borrowing a definition from the definition of personal pension scheme used by the DWP, simply to say that an occupational scheme under tax law is not a personal pension scheme under pensions law. Certain schemes that, for DWP purposes, are personal pension schemes may be in the tax definition of occupational pension schemes. That definition is not the same as that of the DWP, because it serves a different purpose.

Howard Flight: The Financial Secretary will be aware that as large numbers of businesses have frozen or closed their final salary schemes, they have typically moved to group personal pension schemes. Those are employer-sponsored schemes, but they give everyone their own little pot within the scheme. Our presumption had been that, where the rules relating to occupational schemes bite tax-wise in this Bill, they are not intended to bite in relation to group personal pension schemes. Therefore, the distinction is important.

Ruth Kelly: There is a distinction. However, there are different purposes behind the definitions of each Department. A group personal pension may be established by a financial institution, and so, for DWP purposes, may be a personal pension scheme, but that scheme is for the benefit of employees of a sponsoring employer. Therefore, it falls in the tax definition of an occupational pension scheme. They are used for different purposes and have slightly different definitions.

Quentin Davies: What the Financial Secretary is saying is that, for what appear to be perfectly good reasons, different Departments use the same terms of art with different meanings. Surely that is extremely confusing to the public. Would it not be a good day's work if there could be agreement between her Department and the Department for Work and Pensions that a new set of terms be used so that when one term is used in the context of pensions—by whichever Department, in
 whichever context—it has the same meaning in all cases? Would that not be in the interests of open and fair government?

Ruth Kelly: I understand and am sympathetic to the point that the hon. Gentleman makes, but with the utmost respect, it is rather pedantic. The issue is not merely of terminology but of what is appropriate to the legislation, whether it serves its purpose well and whether it is clearly understood by those who use it. In this case, I argue that that is the result.
 In any case, the reference in the amendment to an arrangement comprising a number of personal pension schemes does not fit with the definition of ''arrangement'' used in clause 142. There an arrangement is made under a pension scheme, so an arrangement cannot comprise a number of different schemes. The amendment is technically deficient. I would suggest that the Committee should not get too hung up on the terminology but accept that the underlying rationale for the definitions is appropriate. I therefore urge the Committee to reject the amendment, but perhaps the hon. Member for Tatton will consider withdrawing it.

George Osborne: I do not agree with the Financial Secretary that the point is pedantic and technical, or that no one should care what the terms are, provided that people understand them. In the outside world, people who do not understand the ins and outs of Whitehall will see the Pensions Bill and the Finance Bill as part of the same package. They will land on the doorsteps of pension schemes at roughly the same time and they represent a step change—to use that awful phrase—in how schemes are to manage their business and their tax affairs.
 If there is confusion about the use of terminology in both pieces of legislation, it will be confusing in the marketplace. It will be confusing to people who struggle to understand pensions anyway—a notoriously complex area. If the Government were seriously interested in simplification, as my hon. Friend the Member for Grantham and Stamford (Mr. Davies) pointed out, the Financial Secretary and the Minister for Pensions could have sat down and agreed a set of terms and applied them equally to both pieces of legislation. The difference does suggest somewhat that the Bills were drafted in complete isolation from each other. 
 The provisions lack the sense of joined-up government and are confusing. I suspect that what really happened was that the Inland Revenue drafted its part of the Finance Bill without telling the DWP what it was up to. The DWP was in constant negotiation with the Treasury about its Bill so it was probably a one-way process. The Department for Work and Pensions has become virtually a wholly owned subsidiary of the Treasury. Of all Departments, it has seen more and more of its powers taken away and made part of the Chancellor's empire, and for that reason one would have thought that the two Departments could have sorted out their terms. 
 The point that I make is not pedantic—it goes to the heart of broadening the understanding of pensions among the public and genuinely simplifying the complexity of pensions for people. I am disappointed that the Government have not come up with a consistent set of terms, but I take the Financial Secretary's word for it that my amendment is technically deficient, so I shall not press it to a Division. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 140 ordered to stand part of the Bill.

Clause 141 - Meaning of ''member''

Question proposed, That the clause stand part of the Bill.

John Butterfill: With this it will be convenient to discuss the following amendments:
 No. 201, in 
clause 177, page 151, line 28, leave out 'an active' and insert 'a'. 
No. 202, in 
clause 186, page 159, line 19, leave out 'pensioner'. 
No. 203, in 
clause 266, page 216, leave out line 1. 
No. 204, in 
clause 266, page 218, leave out lines 23 and 24. 
No. 205, in 
schedule 32, page 451, line 33, leave out 'pensioner'. 
No. 206, in 
schedule 32, page 451, line 36, leave out 'pensioner'. 
New clause 15—Meaning of ''member''— 
 'In this Part ''member'' in relation to a pension scheme means a person who has: 
 (a) accrued rights under the pension scheme; or 
 (b) rights under the pension scheme which are attributable (directly or indirectly) to pension credits; 
 and such a person is a member whether or not there are presently arrangements made under the pension scheme for the accrual of benefits to or in respect of that person and whether or not the person is entitled to the present payment of benefits under the pension scheme.'.

George Osborne: This is a complicated set of amendments designed to achieve a fairly simple purpose. Clause 141 is the next of the definitional clauses. It states that ''member'' can mean either
''active member, pensioner member, deferred member or pension credit member''. 
Our first objection is on the ground of simplification—we are going to be the champions of simplification in this Committee. If we are trying to simplify the Bill, surely we should avoid additional definitions wherever possible. We are not clear that it is necessary to establish four different definitions of a member. 
 Our second objection is that the provision is unclear. For example, what is the status of a member in service who has reached the normal retirement date under a scheme and so ceased to accrue benefits? The third objection is that there could be a member who is, at the 
 same time, an active member, a pensioner member and a deferred member. Surely that is bound to lead to confusion. 
 We attempted to amend the clause, but we decided that the simplest solution was to come up with a new clause to replace it—new clause 15. I am confident that the Government will accept the new clause because it suggests a far simpler definition of ''member'': someone who has 
''accrued rights under the pension scheme'' 
 ''rights . . . which are attributable (directly or indirectly) to pension credits''. 
The person is a member whether or not they are currently accruing benefits or receiving them. We do not make a distinction between those two things. We recommend the new clause to the Committee as a small victory for simplification.

Ruth Kelly: I understand that the hon. Gentleman is attempting to enter fully into the spirit of pension simplification and I applaud him for that, but there is always a danger of over-simplifying and I fear that the changes that he proposes would do just that. His proposed definition of ''member'' covers people with accrued rights and rights attributable to pension credits, but it is not clear whether that definition extends to people who have just joined the scheme, or to those who have rights transferred from another scheme.
 More important, the hon. Gentleman's alternative definition does away with the distinction in clause 141 between an active member and a pensioner member. I agree that in most places there is no need to make that distinction, but there is at least one circumstance in which the distinction is important. Paragraph 10 of schedule 32 contains a rule that permits the substantial augmentation of pensions payable to scheme members without any testing against the lifetime allowance, provided that there are at least 50 pensioner members and that they all benefit from the augmentation. The effect is to constrain the awarding of big pension increases when it comes to small numbers of wealthy retired members. 
 Amendments Nos. 205 and 206 would remove the word ''pensioner'' from the provision in schedule 32. That could undermine the rule, since one member of the scheme could receive a very generous increase in his pension, while a further 49 members, who were not yet receiving any pension, would gain no benefit at all. Moreover, the one member would avoid any tax charge that might arise from exceeding the lifetime allowance. Although the amendments are an admirable attempt to take simplification a step further, they are flawed.

George Osborne: Can the Financial Secretary confirm that, because of the flexibility—it is one of the things that we welcome—for people to take part of their benefits, and because of the removal of the requirement to retire, someone could be an active member, a pensioner member and a deferred member at the same time?

Ruth Kelly: The hon. Gentleman makes an interesting point, but most people can be in only one category at a time. Active membership takes precedence over pensioner or deferred membership, so relief is allowed for an active member making contributions to a registered scheme even if that person has started to take benefits. However, a member who is a pension credit member will generally belong to one of the other categories as well. They will be someone with rights under a pension sharing on divorce order who may have started to take benefits and who may also have other pension arrangements. The rules around pension credits are designed to reflect that, but that is a particular situation and not one that has general application. I therefore suggest that the hon. Gentleman do not press his amendments to a Division.

George Osborne: I am not wholly convinced by what the Financial Secretary says. Her principal argument against the amendments seems to be that the different definitions do not really count, except in respect of one small part of a schedule, in which there is a power to augment pensions. The Government could have redrafted the schedule, rather than put in the Bill four different definitions of a member, not least because, as the Financial Secretary confirmed, it is possible for someone to be a member in all four senses of the word, even if active membership takes precedence.
 Surely, the provision will be confusing. Pension fund members may ask whether they are an active member, a pensioner member or a deferred member. Perhaps they receive pension credits as well. My hon. Friends and I were attempting to help the Government to simplify pensions law.

Rob Marris: If the hon. Gentleman carefully reads new clause 15, he will see that it includes two main parts—paragraphs (a) and (b)—and four possibilities follow on from them. I work out that there are 12 possible definitions of a member in the new clause. Therefore, I suggest to him that it is not in fact a simplification.

George Osborne: I am delighted that the hon. Gentleman is in the Committee. I thought that he would be out watching Venus passing in front of the sun, but he decided to turn up here instead. We have served together on other Committees, and I know that he has a legal eye for such things.
 Obviously, I do not accept the hon. Gentleman's argument. New clause 15 says that a person is a member whether or not they accrue or receive benefits. It simply defines someone who has accrued rights under a pension scheme. I agree that it includes a separate category for pension credits, which is a particular subset with which we need to deal, but it reduces the definitions from four to two—it halves the number of categories. However, the Financial 
 Secretary has not yet entered into the spirit of simplification, and I shall not lead my large army over the hill and press for a Division on the matter. 
 Question put and agreed to. 
 Clause 141 ordered to stand part of the Bill.

Clause 142 - Meaning of ''arrangement''

George Osborne: I beg to move amendment No. 207, in
clause 142, page 131, line 6, leave out
'cash balance benefits or other'.

John Butterfill: With this it will be convenient to discuss the following amendments:
 No. 208, in 
clause 142, page 131, line 8, leave out subsection (3). 
No. 209, in 
clause 142, page 131, line 14, leave out '(whether' and insert 'where'. 
No. 210, in 
clause 142, page 131, line 16, leave out 'or any other factor)'. 
No. 211, in 
clause 142, page 131, line 17, leave out subsection (5). 
No. 212, in 
clause 142, page 131, line 26, leave out from second 'benefits' to end of line 28. 
No. 213, in 
clause 142, page 131, line 30, leave out 'all of'. 
No. 214, in 
clause 142, page 131, line 31, leave out from 'circumstances' to end of line 35 and insert 
 'money purchase benefits or defined benefits'. 
No. 271, in 
clause 171, page 148, line 35, leave out 
 'other than a cash balance arrangement'. 
No. 272, in 
clause 171, page 148, line 40, leave out subsection (8). 
No. 278, in 
clause 171, page 148, line 31, leave out subsection (6). 
No. 287, in 
clause 142, page 131, line 36, leave out subsection (9) and insert— 
 '(9) Where an arrangement may provide both money purchase benefits and defined benefits to or in respect of a member, the arrangement is to be treated as two separate arrangements for the purposes of this Part.'. 
No. 288, in 
clause 266, page 216, leave out lines 19 and 20.

George Osborne: The amendments are another genuine attempt at simplification of pensions taxation. Clause 142, which defines the meaning of ''arrangement,'' is the last of the definition clauses before we get to the chapter on registration. Instead of the two types of pension arrangement that are currently defined, the clause establishes four: defined benefits, money purchase, hybrid and cash balance. Cash balance is a new concept in legislation and certainly one that caught the industry by surprise.
 Would not it be simpler just to have two arrangements: defined benefits and money purchase? That is the view of almost everyone in the industry with whom I have discussed the matter. The National Association of Pension Funds states that 
''it seems an unnecessary complication in this already difficult document to isolate conditions for the arrangements described as cash balance, and we are not convinced that the cash balance provisions work consistently.'' 
My amendments are designed to remove the cash balance definition. I can see a problem, because one reading of the definition of cash balance appears to encompass everything that would come under the definition of a money purchase scheme. On the other hand, the definition of money purchase benefits includes nothing that would be included in the definition of a money purchase scheme. Perhaps we should remove the definition of money purchase benefits from the clause, and rename the cash balance benefits as money purchase benefits—I hope that hon. Members follow me. 
 The clause seems to say that a cash balance is an arrangement determined otherwise than wholly by reference to the payments made by a member. What pension scheme is made wholly by reference to payments made by a member? What scheme does not pay, for example, the expenses of experts such as fund managers? If a scheme pays expenses, an amount must be available that is not calculated wholly by reference to the payments made. There are also investment returns, which play a crucial part in determining how much money is available in a pot. The amount in that case is not determined wholly by reference to the payments made. 
 My amendments are designed to get rid of cash balance altogether, and leave it to the Government to ensure that the money purchase definition covers what we all recognise as money purchase arrangements. This is a complicated concept to convey to the Committee. At the moment, no schemes would come under the definition of money purchase benefits, and all money purchase schemes would come under the definition of cash balance benefits. If the Financial Secretary has understood what I am saying, perhaps she will comment on that. 
 There are other problems with the definitions in the clause. I shall highlight for the Financial Secretary those problems that have been raised with me by the industry. First, is a scheme that pays out only for death in service, and which is funded by the employer, covered under the definition of defined benefit arrangements? There are schemes offered by employers that pay out sums only on death; they do not pay out pensions. Secondly, if insured lump sum death benefits are provided under a money purchase scheme—whether paid for by an employer or an employee—are the death benefits defined benefits? 
 Thirdly, the definition of a hybrid arrangement does not seem to apply to alternative hybrids where there are separate sections within the same pension scheme, in which members may participate concurrently. As someone from the industry said to me, the Government seem to be stuck in a time warp. They have the rather old-fashioned idea that a hybrid 
 consists of a money purchase scheme with a defined benefit guarantee—for example, it will not be less than x 80ths of a final salary. These days, however, popular hybrids include schemes where the employer provides a certain defined benefit element, and there is a money purchase element on top. It is not clear where those increasingly popular schemes sit in the definitions. The NAPF raised that with me. 
 What about money purchase schemes that buy an annuity for a scheme member shortly before retirement? Will they become defined benefit schemes? If part of a member's benefits is vested under the scheme, is the part being vested treated as a separate arrangement? 
 I am not the only one who wants answers to those questions. They have been raised by all the representative organisations—the Association of Consulting Actuaries, the Association of British Insurers, the NAPF and the Chartered Institute of Taxation. If those organisations, which spend their lives looking at pensions legislation, are struggling with the definitions, and if they almost universally object to a cash balance arrangement, or believe that it is unnecessary, that illustrates a problem with the clause. 
 A broader point that is worth making concerns the problem with the significant shift from a system of discretionary approval with practice notes—we shall discuss that when we come to the next few clauses—to a legislative set of definitions that cannot be clarified when the Bill is enacted because they will be written into law. In other words, it will not be the Inland Revenue that decides through its current discretionary system exactly what arrangements best suit a scheme and how it will treat that scheme, and instead the matter will be argued over in the courts. The arguments and questions that I have raised with the Financial Secretary today are precisely the sort over which there will be a number of court actions in the years to come. 
 That is perhaps inevitable when moving from a system of discretionary approval, but it makes it all the more essential that, as we pass the legislation, we are clear about the definitions that we are putting in the Bill and reduce the scope for confusion. If the Financial Secretary does not agree with me, will she at least go away and think about that? I have spoken to quite a lot of organisations and to quite a lot of pensions tax lawyers and all have raised queries about the definition of a cash balance benefit. Surely it is worth the Inland Revenue thinking about that and deciding whether it is strictly necessary that it has its own special category in the clause.

Ruth Kelly: There are two basic types of arrangement: money purchase arrangements, which are also known as defined contribution or DC arrangements, and defined benefits or DB arrangements. Two further sorts of arrangement are defined in the clause: cash balance arrangements, which are a particular type of money purchase arrangement, and hybrid arrangements, which are
 arrangements under which someone may receive benefits of one type or another depending on the circumstances. Those arrangements exist in the current regime. We do not want to limit the freedom of members, employers or providers by dictating that particular arrangements should exist in future, nor do we want to restrict people's freedom to move between different types of arrangement. Although there will be a single tax regime, the legislation must recognise that different arrangements operate in different ways, so it is necessary in some places to provide rules appropriate to the way in which the particular arrangement works.
 The hon. Member for Tatton directed his comments at the concept of the cash balance arrangement, which he proposes to remove altogether from the legislation.

Michael Jack: Given that in her opening comments the Financial Secretary dealt with a number of existing formulations of what is a pension and then said that in future she wanted to maintain a regime of flexibility and interoperability, can she explain by what mechanism future adjudications will be determined as to which category a new pension product might fall into or when there is a difficulty with an existing product? My hon. Friend referred to the possibility of court proceedings, but I am sure that the Treasury would not want that as the sole determinant of what definition a scheme falls into.

Ruth Kelly: In general, the Inland Revenue will decide into which category an arrangement falls. However, there will be a right of appeal under the arrangements. As I understand it, there will be a right of appeal to the Commissioners in the ordinary way, as now, and people can appeal if they feel that the Inland Revenue has operated inappropriately. That right of appeal is in fact being extended in the Bill.
 I shall return to the point about the cash balance, to which the hon. Member for Tatton directed the majority of his remarks. There are very good reasons why the concept of a cash balance arrangement must be retained. We referred to the arrangement in the consultation document—it was raised by secondees from the pension industry to the Revenue. Under a cash balance arrangement, the individual is promised a capital sum at retirement to be used for the provision of benefits. It is similar to standard money purchase arrangements where the benefits are calculated by reference to an amount or pot that becomes available for the provision of benefits to the individual. In a cash balance arrangement, however, the amount is promised to an individual rather than depending entirely on the level of contributions and the investment performance of the fund. There is an element that is similar to DB arrangements. 
 In a cash balance arrangement, the promised pot grows by a fixed, ascertainable amount each year. At its simplest, it may promise the individual that on retirement a fixed sum, say £10,000, will be put into the pot for each year of service. It would be inappropriate to treat cash balance arrangements in the same way as 
 money purchase arrangements for all purposes. For instance, for annual allowance purposes, the individual's annual pension savings in a standard money purchase arrangement are measured by reference to the contributions made; in a cash balance arrangement there may be no annual contributions whatever. The promise may be fulfilled in the scheme providing a promised pension pot in the final year. We must measure the growth in the promised pot and not the contributions. 
 Wherever possible, cash balance arrangements are dealt with in the same way as other money purchase arrangements, but for fairness and to reflect the different level on which cash balance arrangements operate in certain areas, it is necessary to have different treatment. 
 In similar areas such as the transitional provisions and the unauthorised borrowing provisions, it will be necessary to distinguish between cash balance arrangements and other money purchase arrangements, both of which we will address when debating the pension simplification proposals. In order to make the necessary distinctions, we must have a definition of the cash balance arrangement, and that is what the clause provides. 
 The hon. Gentleman raised several other points, which I will try to address. He will forgive me and perhaps give me a reminder if I fail to respond to all of them. Insured lump sum death benefits provided under a money purchase scheme will be treated as defined benefits, as long as they are themselves defined benefits—that is, the sum on death is a designated amount. In this case, the arrangement is likely to fall within subsection (9). The retirement benefits are money purchase benefits and the death benefits are defined benefits, so they will be treated as two separate arrangements. 
 The legislation caters for modern hybrids, dealing with the situation in which there are separate sections within the same pension scheme in which members may participate concurrently. For example, where on retirement both money purchase and defined benefits will be paid, under subsection (9) they will be treated as separate arrangements. 
 The points that the hon. Gentleman made sometimes touched on how pensions are treated between different arrangements. I am happy to discuss further with him, perhaps through correspondence, particular areas of the legislation where he feels that the definition is not sufficiently clear. However, we feel confident that it is clear enough for people to understand how their pension arrangements should be treated.

George Osborne: I am not convinced about the need to provide a separate definition of cash balance benefits. I am merely trying to simplify the legislation. If the category becomes redundant and sits there in the legislation, so be it—we have just wasted a few more trees by printing it.
 I am not convinced by what the Financial Secretary said. She said that the idea was recommended to the Treasury by secondees from the industry during the consultation. They were clearly not the people in the 
 industry who spoke to me. One of the striking things when I prepared for the Committee, as one does, meeting various representative organisations and speaking to individuals who offered to help with the drafting of amendments and so on, is that every single one of them asked why there is need for a separate definition of cash balance benefits. They asked whether that would not simply complicate matters and make them more confusing, and nothing that the Financial Secretary said has cleared that up. I suppose we shall just see whether it becomes a widely used definition. 
 The Financial Secretary covered some of my specific questions such as the one concerning death-in-service benefits. She assured me that modern hybrid arrangements would be covered. She was very proud of subsection (9), which is one of the most complicated and convoluted subsections in the Bill. It says: 
 ''Where not all the benefits that may be provided under an arrangement to or in respect of the member are of the same one of those varieties of benefits, the arrangement is to be treated for the purposes of this Part as being two or three separate arrangements one of which relates to each of the two or three varieties of benefits that may be so provided.'' 
I forgot to mention earlier that amendment No. 287 would radically simplify that subsection and is a model of how such things should be done. It is very straightforward: everyone can understand it and read it. I am so confident of its simplicity—even though the Financial Secretary will not accept it here and now—that I am sure that the matter will arise again on Report.

John Burnett: The hon. Gentleman has alluded to amendment No. 287. Presumably, its drafting is slightly defective, because there could be more than two arrangements.

George Osborne: It was drafted in the hope that the Government would accept my other amendment. If they had accepted the entire package, it would be correct. One always approaches Committees in the spirit of optimism that everything one proposes will be accepted. I am not going to press the matter to a Division. We may wish to return to it on Report, and the Government should give further consideration to it. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 142 ordered to stand part of the Bill.

Clause 143 - Registration of pension schemes

George Osborne: I beg to move amendment No. 290, in
clause 143, page 132, line 26, at end insert
'and, if the Inland Revenue's decision is not to register the pension scheme, the reasons why the pension scheme has not been registered.'.

John Butterfill: With this it will be convenient to discuss amendment No. 291, in
clause 147, page 134, line 39, at end add 
 'and the reasons why the registration of the pension scheme has been withdrawn.'.

George Osborne: There are a number of specific amendments to the clause that I shall speak to, but I think that my hon. Friend the Member for Arundel and South Downs is keen to catch your eye to have a stand part discussion on the clause, Sir John.
 Clause 143 and the following six clauses establish a new regime by which pension schemes register with the Inland Revenue rather than receiving specific approval as is currently the case. The explanatory notes—for once—explained what is going on well when they described it as a process now, check later procedure. It is meant to be quicker and more streamlined, which we welcome. We accept that the existing approval processes are fairly cumbersome. However, the changes carry risks for pension schemes and their members, including a risk that the Inland Revenue will not register a scheme, or will even de-register it—as we will deal with later—and that schemes will be subject to punitive taxation. 
 Although the current system is cumbersome, one of its advantages is that it ensures that no one can think that they have set up a pension scheme and find out later that it does not have the approval of the Inland Revenue. They need the approval as the first step. Under the new system, a scheme will write to the Inland Revenue and give the information that is required, which is explained in the consultation document, such as their name and address and the accounting year end. They also have to sign a statutory declaration. 
 Although I may have got the process wrong, and the Financial Secretary may correct me if I have, I understand that once the registration has been sent to the Revenue, unless it is obviously wrong, an acknowledgement of the registration will be returned. I have learned from the process of postal voting that there is a big difference in the law between issuing something and receiving it. Once the acknowledgement is issued, tax relief will be allowable on the pension contributions that are made after that date. In other words, someone could send their registration, receive the acknowledgement, happily set up a scheme and start running it and start receiving contributions that the members think are tax-relieved, but suddenly, because the checking process comes later, the Inland Revenue might write to them saying, ''We have now undertaken checks and decided that we cannot register your scheme. We have processed it, but on checking it we have found that it does not meet our criteria, or there have been mistakes.'' As I understand it, the contributions that the scheme will have received to that date will not have attracted tax relief. That will come as a shock to members. 
 Of course, bad people will try to exploit the system by setting up sham schemes. One of the risks of the legislation and this process is that it will make it somewhat easier to set up sham schemes. However, I am talking about genuine misunderstandings, omissions or mistakes, perhaps made by the scheme administrator, which have potentially damaging consequences for the member. Although subsection (5) makes it clear that the onus is on the Inland 
 Revenue to register a scheme, unless there are reasons for it to do otherwise, it says that the Inland Revenue can reject the registration if 
''any information contained in the application is incorrect''. 
That is a broad brush with which to reject registration, and it could have damaging consequences. 
 Amendment No. 290 would mean that where the Inland Revenue decided not to accept a registration, it would at least have to explain its reasons. One would hope that it would do that and that that would be good practice, but it is worth writing it into the Bill, not least for reasons of natural justice, so people know why a registration has been rejected, and because it allows them to make a meaningful appeal knowing the grounds on which the Inland Revenue made its decision. Amendment No. 291 would place the same requirement on the Inland Revenue when it de-registers a scheme. 
 Finally, referring to a point that I made earlier, could the Financial Secretary say something about the process now, check later process, including how long it will take? How long will that shadow hang over a scheme before a person receives confirmation that it has been duly checked and everything is bona fide? Will the process take many months if the Inland Revenue is overwhelmed with applications, or will it be done fairly quickly? Elsewhere in these clauses there is a requirement on the individual to do things within 30 days—for example, to lodge appeals. Are we talking about a similar time scale that the Inland Revenue applies to itself in order to make it clear that, once it has received the registration form, it will make the checks as quickly as possible—within 30 days, for example? That way, schemes need not fear that their tax-relieved contributions will turn out not to attract tax relief.

John Burnett: I support both the amendments, and amendment No. 289. As the hon. Gentleman rightly said, it is in the interests of natural justice that taxpayers be given proper reasons for any failure of the Inland Revenue to register. That is only fair and reasonable.
 There is a slightly esoteric matter on which the Financial Secretary may be able to calm nerves. As she knows, if registration is denied, tax relief on contributions already made will also be denied. However, I hope that she will confirm that, if registration is subsequently permitted after amendments and further clarification, all contributions made that are within the limits allowable by the Inland Revenue will qualify for tax relief. 
 Amendment No. 289 is entirely sensible, and I hope that the Financial Secretary will assure the Committee that no further application need be made in respect of schemes referred to in subsection (9).

Rob Marris: Prima facie, the amendments seem attractive, and I will be interested to hear my hon. Friend's response.

Ruth Kelly: I understand the reasons behind the amendment. Of course, the scheme that has been refused registered status, or has had its registered status withdrawn, will want to know why; but before I address the amendments specifically, I should say that I am quite pleased that hon. Members seem generally to welcome the process now, check later approach, which will, of course, be much simpler for pension schemes than the current arrangement.
 The hon. Member for Tatton asked how the process would work. The Revenue will ask for straightforward details, such as the scheme's name and contact details and the address of the administrator. The scheme will also be asked for a description of its legal structure—for example, it will be asked whether it is a trust—and an indication of how many members it is likely to have. Finally, it will be asked to say whether the members of the scheme will have any role in running it. That will be important for the Revenue's risk assessment strategy. 
 The Revenue expects to be able to process applications quickly—generally within one working day of receipt. It will reject an application only if something is wrong with it. The amendments are superfluous.

George Osborne: The Financial Secretary says that it will take one working day to check the information. My concern is that a scheme may send information that seems on the surface to be accurate, but the Inland Revenue may say, ''We need to investigate these people a little bit further,'' and take a month or two to do that. During that process, the scheme attracts tax-relieved contributions. At the end of the process, having checked the scheme, the Inland Revenue may decide that it cannot register it. What then happens to the contributions that the scheme had thought were tax-relieved?

Ruth Kelly: This touches on the thrust of the amendments. The Inland Revenue would de-register a scheme only in extreme circumstances. If the Revenue spotted a trivial or obvious error, it would be able to check that straight away and perhaps phone up or email the person who had made the application. The onus is on the person who made the application to get it right.

John Burnett: I am surprised about the one-day turnaround. Trustees of pension funds will be cautious, and they will send in trust deeds and goodness knows what else to the Inland Revenue. It will take the Revenue a long time—a lot longer than one day—to go through the documents before it responds and gives its views.

Ruth Kelly: Such documents would be superfluous to the application. The application form is completely straightforward, and should be easy to check by the Inland Revenue straight away. If an application is rejected, the Revenue will notify the scheme administrator of the fact in writing in accordance with subsection (6). The administrator will then have the opportunity to make a fresh application. The Revenue expects to reject only a small percentage of applications on the basis of incorrect information.
 De-registration is a sanction that would be used only in the most serious of cases. The circumstances under which a scheme can be de-registered are set out in clause 148. Examples include failure to pay a substantial amount of tax due, and a significant failure to provide information that is required by the Inland Revenue. Clearly, we could not allow schemes to remain with the tax advantage regime if they were flouting the rules. Removing such a scheme from the regime does not mean that it cannot continue, but from the date of de-registration it must no longer be entitled to the tax advantages that come with registered status. 
 The situation that the hon. Member for Tatton envisages will not occur in the operation of the scheme. In most cases, the Revenue will explain its decision to reject an application as a natural extension of communicating with the scheme's administrator. In other words, the Revenue would give a reason as a matter of course so we are not talking about information that the Revenue would wish to withhold from the scheme administrator. If the Revenue did not give reasons, or gave inadequate reasons, that would invite an appeal from the scheme administrator, so there is an in-built incentive for the Revenue to explain its decisions, and the amendments are superfluous to the legislation.

John Burnett: Yes, there is an appeal system, which is clearly set out in clause 146, but that just means loss of time and greater expense. Only a few bodies are nominated as persons by whom registered pension schemes may be established, and given that they are largely—I hope, entirely—responsible people, it would be sensible to have a free flow of information from them to the Revenue and vice versa. It is in the interests of speed and of lessening bureaucracy and legal proceedings to avoid an appeal and have co-operation. Perhaps the clause should enshrine that.

Ruth Kelly: I completely accept and sympathise with the hon. Gentleman's underlying argument. Co-operation is in the best interests not only of the Inland Revenue but of the scheme administrators. My argument is that the in-built incentives to avoid an appeal are so strong that to enshrine in legislation the fact that the Revenue must explain its decision to the scheme administrator is a step too far—it is superfluous. The Revenue will have a quick turnaround time, the application form will be straightforward, and it will of course explain its decision if it has to reject an application.

Rob Marris: I say this as someone who is still a member of the Law Society and who practised law as a solicitor, although not in this area, before I entered this place. I recall that in certain circumstances of administrative law a public body cannot be appealed against or taken to judicial review if it does not give reasons for its decisions, but should it voluntarily give reasons, it is liable to judicial review—ergo, there is on
 occasion an incentive for a public body not to give reasons. That is my concern and, I suspect, a concern of the hon. Member for Tatton.

Ruth Kelly: That concern has not been expressed by the Inland Revenue, which intends to give explanations as a matter of routine. It has made it absolutely clear, and I give a commitment in this Committee, that it intends to explain the reasons for refusal. I hope that I have put to rest my hon. Friend's fears. The amendments are superfluous, and I ask that they be withdrawn.

George Osborne: I am in two minds about the hon. Member for Wolverhampton, South-West (Rob Marris). On the one hand, he sits in a key Tory marginal, which we must take back if I am to sit on the other side of the Committee. On the other hand, he has always caused trouble for Ministers in the various Committees on which I have served with him, so I would not want him to lose his seat.

Rob Marris: On a point of order, Sir John. The hon. Gentleman suggested that I always cause trouble. I strongly object to the use of the word ''always,'' and I urge him to reconsider it or produce some evidence.

George Osborne: I remember the Employment Bill Committee, in which the hon. Gentleman regularly took the Minister to task on various matters. That was helpful to my side of the Committee, and I did not object to it. Naturally, I think that he performs a good, constructive role. Other Labour Back-Bench Members may wish to follow his example.
 Turning to the substance of the amendments, I am glad that we have had this debate. The Financial Secretary has given a verbal commitment that the Inland Revenue will, as a matter of routine—that was the phrase she used—provide explanations if it decides not to register a scheme. We shall see whether it turns around applications in one day. I can already envisage the written questions about the average time taken to process a registered scheme application, and since this will all take place in 2006, I shall be the one providing the answer. I am grateful that she saddled me with that commitment.

John Burnett: Would the hon. Gentleman be happy to hear some form of reassurance from the Financial Secretary about the points on tax relief that he and I raised?

George Osborne: I do have a concern about tax relief. However, if schemes were to be processed in one day, as the Financial Secretary assures us would be the case, the problem would not arise. It will become an issue of relevance in the way that I described if it takes several weeks or months to register a scheme.

John Burnett: The point is that if registration is denied and subsequently granted—I believe the Financial Secretary is nodding—tax relief would be available ab initio. Am I wrong about that?

George Osborne: Sorry, that was the hon. Gentleman's second point. I do not know the answer; perhaps the Financial Secretary can provide it. I suspect that the
 decision by the tribunal would be that tax relief should be granted from the receipt of the application. I am getting used to giving answers.
 Given the assurances that I have had from the Financial Secretary, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

George Osborne: I beg to move amendment No. 289, in
clause 143, page 132, line 38, at end add
'and no application need be made to the Inland Revenue under this Part'.
 My Liberal Democrat friend spoke to my amendment before I moved it. It is designed to clarify something that I am sure the Financial Secretary will be able to clarify in her response. Part 1 of schedule 34 states that any current approved pension will, on 6 April 2006, become a registered pension scheme unless it chooses not to. That seems sensible. The amendment would just make it clear that schemes do not have to make an application to the Inland Revenue for that to happen and that it will happen automatically. I am sure that that is so and I look forward to the Financial Secretary confirming that, because there has been some confusion in the industry about whether schemes will have to apply. 
 Perhaps the Financial Secretary could also deal with the point about what schemes must do if existing scheme rules do not meet the requirements of the new regime. I understand that there is a catch-all power in the legislation for scheme rules to be amended, but what does an existing scheme need to do as it approaches A-day to ensure that it is in order with the new regime? Does it need to make any application to the Inland Revenue? The amendment would sort that out. 
 Another point about the registration process, which will be of particular interest to current schemes and also to future schemes, is that the December 2003 consultation paper said that a facility of electronic registration would be developed. That is welcome. I have become an even greater fan of e-government since a constituent and friend became the new e-envoy. One of his jobs will be to allow the registration process to take place over the internet. However, there is an ominous sentence in the consultation document, which states: 
 ''Making e-business the mandatory method for registering [and subsequently amending and reporting scheme details and information] could lead to a step change in delivery. Views would be welcomed on this approach.'' 
It is one thing to make e-registration possible but another to make it the mandatory means of registering a scheme. It will be easy for large schemes, but there are many small schemes and people may not be totally familiar with the technology and may prefer to continue to use a paper-based process. Perhaps the Financial Secretary will say something about the views that she has received in the past six months on that proposal in the consultation document.

John Burnett: I jumped the gun because I thought that amendment No. 289 was grouped with the previous amendments. I will not repeat what I was going to say, but look forward to hearing reassuring words from the Financial Secretary.

Ruth Kelly: The amendment is unnecessary. Nothing in clause 143 states that making an application is the only route by which a pension scheme becomes registered.
 The application arrangements set out in the clause are primarily for use by new schemes that are established after the simplified regime takes effect. There are separate transitional arrangements in schedule 34 under which existing schemes, if approved for tax purposes by the Inland Revenue, are admitted into the new regime. Paragraph 1 of that schedule states that any such scheme will 
''be treated as becoming a registered . . . scheme'' 
from 6 April 2006. Therefore, it would be superfluous to say that those schemes do not need to make an application under this part of the legislation because that is already clear from schedule 34. 
 The Inland Revenue will use the time between now and 6 April 2006 to ensure that the pensions industry knows about the transitional arrangements. We expect that the vast majority of existing schemes will wish to remain within a tax-advantaged environment and they will not need to do anything, although they will need to be aware that entry into the new regime brings new responsibilities—for example, to apply the lifetime allowance test when certain events occur. 
 The Revenue will publish guidance and work closely with the industry to ensure that the right messages are conveyed to scheme administrators and, more widely, to scheme members and employers. 
 The hon. Member for Tatton raised the issue of whether electronic registration should be mandatory. He is correct that we consulted on that. Responses were, as one might expect, mixed. Although most of the respondents were in favour of the change, there were concerns about the cost of transition to a fully electronic system, so I inform the Committee that we do not propose to make e-filing mandatory, although I recognise the case made by the hon. Gentleman and his friend the e-envoy, that such a move could bring a step change in the efficiency of the process. At this moment, there is not sufficient support to make that step. On the grounds that the amendment is superfluous, I ask him to withdraw it.

George Osborne: It was not I who said that such a move would make a step change in delivery, nor my friend the e-envoy. It was the Government's consultation document that made that point.
 My experience of e-government was when I tried to make a passport application online. I went through loads of processes and various pages and at the end it said ''press print'', and out came an application form that I could have got from the post office. I then had to send it in the post with my photographs and so on. 
 It is good to hear the groundbreaking news from the Financial Secretary that the Government are not going to make e-registration mandatory. I hear what she says 
 on my amendment about working with the industry to ensure that people are aware of the changes, and, as she put it, that the registration process will happen automatically unless they opt out of it. The issue of amending scheme rules to make them consistent with the new regime is something that we can come back to at a later stage. Although there is a general Inland Revenue power to change scheme rules in the legislation, I cannot remember where it is. Once I do, we can have that debate at greater length. 
 Given what the Financial Secretary has said, and the huge U-turn on e-registration, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Howard Flight: You, Sir John, and the Committee will be aware that the tax approval regime that registration replaces has been the policing force by which what pension funds can invest in has been effectively controlled. In the regime that is coming to an end, there are some areas that one might object to—for example the fact that money purchase pension schemes can never invest in venture capital—but the implication of the new registration regime is that there will be no limits at all on what any sort of pension fund can invest in. As I broadly support market economies, I am attracted to that, but I am also mindful of the vulnerability of some.
 The Financial Secretary said that the Revenue wants to know where people might be managing their own money purchase pension scheme. Clearly it is a situation where people could be preyed on and persuaded to invest in inappropriate investments or indeed to have the weighting of their investments wrong. Through all the discussion and consultation preceding the reforms, the Government have said nothing at all, as far as I am aware, on the fundamental issue of whether we are going to move to an investment free-for-all for all forms of pension fund or whether it is their intention to introduce some regulation that will impinge on whether the Revenue agrees to register a fund. If so, they should make that absolutely clear. If not, and we are going to have a free-for-all in two years, that should be made absolutely clear. I would like to hear from the Minister what the Government's policy is on this. 
 I offer one minor word of caution. In the main, I have always felt that the investment rules for ISAs and PEPs have been sensible: they are extremely broad and do not prevent people from investing in things that they might want to invest in, but they have also had the advantage of protecting them from being exploited and from their own mistakes. However, while I am in favour of getting rid of constraints and regulations, if we are to move to a complete free-for-all we should be aware that that opens the door to problems in the future, with people turning around and saying, ''I was sold a pup and I should not have invested in that,'' or, ''It was mis-sold to me,'' and so forth. 
 I raise this issue now to make the point that the change from tax approval to registration effectively ends the old system of policing, and I would like to know what the Government's proposals are—if they have any—for the investment regime for pension funds in the future.

Ruth Kelly: I believe that we will come on to debate the set of investment rules that will apply to pension schemes and how they will operate, although I am at a loss at the moment to remember under which clause that will take place, but given that the hon. Gentleman has raised this matter under the registration of pension schemes, perhaps I should say a few words on it now.

John Butterfill: Order. I have some sympathy with the hon. Lady in that I am not entirely clear myself as to why the nature of the investments should be considered when we are looking at the requirements for registration. However, perhaps she is prepared to say something general.

Howard Flight: I am more than happy for this to be talked about later, but the important point is that the investment regulations were a function of tax approval, and we are getting rid of tax approval and moving to registration. Under the old arrangements, things could be enforced: if people did not stick by what had been approved, their schemes were unapproved, with all the penalties. We are now moving to this new registration arrangement for which there is no policing, other than up front.
 If there are to be rules about what can and cannot be invested in, with this clause getting rid of what was the policeman, it prompts the question of what will be the policeman of the future. Most of the industry understands that there will not be any rules. I am not sure what the Minister is referring to, but I have not been able to find anything other than what are some very minor references in comparison with the sort of regime that was provided by the Revenue under the approval system.

Ruth Kelly: The hon. Gentleman is making points that arise more properly under clause 160. However, as he has made some general points, I will respond in general terms now.
 I understand that the hon. Gentleman welcomes the general simplified approach to taxation arrangements and pensions, and the one set of investment rules that will now apply throughout all tax-privileged pensions. The general rule is that all commercial investments will be allowed, but there are certain restrictions; loans to sponsoring employers will be subject to restrictions, for example, and there are other restrictions, too. 
 The hon. Gentleman is right that the policing mechanisms have changed, although I propose to return to that when we debate this matter more fully. We have a process now, check later system. That should speed up the process enormously for scheme administrators and introduce huge simplicity to the arrangements. We have set out in detail the investment rules that will apply and how they will be policed through the audit system. However, with your 
 permission, Sir John, the precise mechanisms of how that will operate would be better debated later on in our proceedings. 
 Question put and agreed to. 
 Clause 143 ordered to stand part of the Bill. 
 Clauses 144 to 146 ordered to stand part of the Bill.

Clause 147 - De-registration

Question proposed, That the clause stand part of the Bill.

George Osborne: Before we nod through the process of de-registration, we should just get the Government to explain one or two things. After all, we are talking about a draconian power to de-register a scheme, not least because there is an immediate 40 per cent. tax charge on the value of the fund once de-registration takes place.
 I have one specific question and then I will make a broader point. As I understand it, under the current system if a scheme loses approval it also loses the last six years of tax privilege. Is that the same in this proposal? Would the six years of tax privilege be lost? That is not spelled out. 
 On the broader point, a 40 per cent. tax charge on a scheme will obviously have a huge impact on members. What if those members are the innocent victims of fraud or incompetence by the scheme administrators and trustees? They will have had the value of their fund dramatically reduced by the Inland Revenue. Indeed, they will probably already, by definition, have been the victims of huge unauthorised payments of 25 per cent. or more coming out of what they thought was their pension fund. What will be 
 done to protect members in such cases? How does the de-registration process work with the parts of the Pensions Bill that are concerned with the pensions regulator, who can step in and freeze a pension scheme and start administering it on behalf of members? How does the process relate to the role of the pension protection fund? When would a scheme be de-registered but not referred to the pensions regulator? Those are confusing issues. Indeed, if the pensions regulator is trying to save a scheme and to resuscitate it, it will not helped by the fact that on day one the Inland Revenue has grabbed 40 per cent. of the scheme's value. Perhaps the Financial Secretary will say something about those questions. 
 The grounds for de-registering are in the next clause, but if you allow me, Sir John, I will touch on the matter now, because it is part of the same point. Most of the grounds for it are serious, but there is also a power to de-register a scheme where information is required, the scheme fails to provide it and that failure is ''significant''. One of the definitions of ''significant'' relates simply to the quantity of information provided, not its quality. In other words, it might not relate to substantive information that a scheme failed to provide, but a large amount of information. Will the Minister clarify that the Inland Revenue will make a quality judgment on that, and that if it is significant information that the scheme is failing to provide and it has had lots of warnings, that is when de-registration kicks in? 
 The principal point that I wanted to know about was the way in which the rights of members will be protected where, through no fault of their own, fraud has occurred or huge unauthorised payments have taken place, and they see the value of their scheme disappear. 
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.